Therefore, the new alliance between SINA Corp (NASDAQ:SINA) and Alibaba, which runs much deeper than Baidu’s previous deal with Sina, could cause major problems for Baidu. Although Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s search engine powers Weibo’s network, it will be directing search results to Alibaba-sponsored sites – which means that advertising revenue will be fed to Sina and Alibaba instead.
There had been persistent rumors of Baidu being interested in acquiring Sina, which has a market cap of $3.6 billion, since it could solve a lot of its mobile woes in one fell swoop. However, with Alibaba’s recent investment in Weibo, the price of a takeover just went up. In addition, Alibaba will likely block any takeover attempt from Baidu.
Indirect benefits for Yahoo
Yahoo!, which owns a 24% stake in Alibaba, will benefit from the Weibo deal. Through Alibaba, Yahoo! Inc. (NASDAQ:YHOO) will own an indirect 4.3% stake in Sina. This could actually strengthen Yahoo’s foothold in China, where other western companies such as Google Inc (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) have clumsily fumbled.
Google Inc (NASDAQ:GOOG), which was booted from the country after its widely publicized dispute with the Chinese government, has only held on to the market with its Hong Kong portal website and a monetization partnership with Qihoo 360. Meanwhile, Microsoft Corporation (NASDAQ:MSFT) partnered with Baidu to provide English search results within China.
Last quarter, Yahoo! Inc. (NASDAQ:YHOO)’s profit from its two major Asian investments, Alibaba and Yahoo! Japan, came in at $217.5 million – topping the company’s core business profit of $186 million.
However, Yahoo! shareholders should be aware that Alibaba CEO Jack Ma intends on buying back Yahoo!’s stake, and has already purchased back half of Yahoo!’s stake last year for $7.6 billion. When the partnership was originally struck in 2005, Yahoo! owned a 40% stake in Alibaba.
Alibaba is also reportedly preparing to give its Yahoo! China brand back to Yahoo! Inc. (NASDAQ:YHOO), which further winds down the partnership between the two companies. This means that although Yahoo! investors might reap some short-term benefits from the deal with SINA Corp (NASDAQ:SINA), those gains might not last as Alibaba finally buys back the rest of its shares and goes public in its rumored upcoming IPO.
The Foolish bottom line
Alibaba and SINA Corp (NASDAQ:SINA)’s partnership is an industry-shaking move that will have long-term ramifications across the sector.
These two companies will easily reap major long-term benefits as their sites are more tightly integrated with each other. Simply imagine if Amazon partnered with Facebook Inc (NASDAQ:FB), or if eBay Inc (NASDAQ:EBAY) allied with Twitter, and you’ll have an idea of how formidable Alibaba and Sina can be together, as they solidify their control over China’s rapidly growing e-commerce market.
The article Are These Two Chinese Cyberspace Giants About to Crush the Industry? originally appeared on Fool.com and is written by Leo Sun.
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